1. society
2. work
3. unemployment

THE RECENT SLOWDOWN IN
THE WAR ON POVERTY 50
YEARS LATER:
A PROGRESS REPORT
The Council of Economic Advisers
January 2014
Executive Summary
“Unfortunately, many Americans live on the outskirts of hope—some because of their poverty,
and some because of their color, and all too many because of both. Our task is to help replace
their despair with opportunity. This administration today, here and now, declares unconditional
war on poverty in America. I urge this Congress and all Americans to join with me in that effort.”
-
President Lyndon B. Johnson, January 8, 1964
Fifty years ago, in January of 1964, President Lyndon B. Johnson declared a “War on Poverty”
and introduced initiatives designed to improve the education, health, skills, jobs, and access to
economic resources of those struggling to make ends meet. While there is more work to do, in
the ensuing decades we have strengthened and reformed many of these programs and had
significant success in reducing poverty. In this report, the Council of Economic Advisers presents
evidence of the progress made possible by decades of bipartisan efforts to fight poverty by
expanding economic opportunity and rewarding hard work. We also document some of the
key steps the Obama Administration has taken to further increase opportunity and economic
security by improving key programs while ensuring greater efficiency and integrity. These steps
prevented millions of hardworking Americans from slipping into poverty during the worst
economic crisis since the Great Depression.
 Poverty has declined by more than one-third since 1967.
 The percent of the population in poverty when measured to include tax credits and
other benefits has declined from 25.8 percent in 1967 to 16.0 percent in 2012.
 These figures use new historical estimates of the Census Bureau’s Supplemental Poverty
Measure (SPM) anchored to today’s poverty thresholds. The SPM is widely
acknowledged to measure poverty more accurately than the official poverty measure,
which excludes the value of refundable tax credits and benefits like nutrition assistance
and has other limitations.
 By anchoring the measure to today’s poverty standards we are able to ask how many
people in each year since 1967 would have had inflation-adjusted family resources
below the 2012 SPM poverty thresholds.
 Despite real progress in the War on Poverty, there is more work to do.
 In 2012, there were 49.7 million Americans grappling with the economic and social
hardships of living below the poverty line, including 13.4 million children.
 While the United States is often seen as the land of economic opportunity, only about
half of low-income Americans make it out of the lowest income distribution quintile
over a 20-year period. About 40 percent of the differences in parents’ income are
2
reflected in children’s income as they become adults, pointing to strong lingering effects
from growing up in poverty.
 This significant decline in poverty is largely due to programs that have historically
enjoyed bipartisan support and increase economic security and opportunity.
 A measure of “market poverty,” that reflects what the poverty rate would be without
any tax credits or other benefits, rose from 27.0 percent to 28.7 percent between 1967
and 2012. Countervailing forces of increasing levels of education on the one hand, and
inequality, wage stagnation, and a declining minimum wage on the other resulted in
“market poverty” increasing slightly over this period. However, poverty measured taking
antipoverty and social insurance programs into account fell by more than a third,
highlighting the essential role that these programs have played in fighting poverty.
 Programs designed to increase economic security and opportunity lifted over 45 million
people from poverty in 2012, and led to an average of 27 million people lifted out of
poverty per year for 45 years between 1968 and 2012. Cumulatively these efforts
prevented 1.2 billion “person years” of poverty over this period.
 Social Security has played a crucial role in lowering poverty among the elderly. Poverty
among those aged 65 and older was 35 percent in 1960. Following rapid expansions in
Social Security in the 1960s and 1970s, poverty among the elderly fell to 14.8 percent in
2012.
 These programs are especially important in mitigating poverty during recessions.
Despite an increase in “market poverty” of 4.5 percentage points between 2007 and
2010, the poverty rate, appropriately measured, rose only 0.5 percentage points due to
both existing programs and immediate actions taken by President Obama when he took
office in response to the worst financial crisis since the Great Depression.
“Deep poverty”—defined as the fraction of individuals living below 50 percent of the
poverty line has declined as a result of these programs. Without government tax credits
or other benefits, 19.2 percent of the U.S. population would have been in deep poverty
in 2012, but only 5.3 percent were in deep poverty when these benefits are included.
 Programs that strengthen economic security and increase opportunity continue to
be essential in keeping millions of Americans out of poverty and helping them work
their way into the middle class.
 Social Security benefits reduced the 2012 poverty rate by 8.5 percentage points among
all individuals, and by 39.9 percentage points among those aged 65 or older.
3
 Tax credits such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC)
reduced the 2012 poverty rate by 3.0 percentage points among all individuals, and by
6.7 percentage points among children.
 The Supplemental Nutrition Assistance Program (SNAP)—formerly known as the Food
Stamp Program—reduced poverty in 2012 by 1.6 percentage points among all
individuals, and by 3.0 percentage points among children.
 Unemployment Insurance (UI) reduced poverty by 0.8 percentage points in 2012.
 Antipoverty programs have been increasingly oriented around rewarding and
encouraging work and are an important source of opportunity for low-income
working families.
 Both the EITC and the partially refundable component of the CTC increase the reward to
work, offsetting payroll taxes and providing a supplement to labor market earnings.
Research has shown this increases work and earnings, and increases participation in the
workforce, particularly for single parents.
 Some traditional antipoverty programs have been redesigned to encourage and
promote work. The vast majority of Americans receiving nutrition assistance have a job
or are either too young to work, are over age 65 or are disabled. Meanwhile, bipartisan
welfare reform signed by President Clinton in 1996 strengthened work requirements
and put a greater emphasis on employment.
 Despite concerns that antipoverty programs may discourage employment, the best
research suggests that work disincentive effects are small or nonexistent for most
programs.
 Programs that help fight poverty and provide economic security touch a wide swath
of Americans at some point in their lives.
 Programs that fight poverty help a broad range of Americans get back on their feet after
economic misfortune. For example, about half of taxpayers with children used the EITC
at some point between 1979 and 2006, and over two-thirds of Americans aged 14 to 22
in 1979 received income from SNAP, AFDC/TANF, Supplemental Security Income (SSI) or
UI at some point between 1978 and 2010.
 Social Security Old Age and Survivors’ Insurance, Social Security Disability Insurance, and
UI are available to all Americans with a steady work history. These social insurance
programs play an important role in keeping out of poverty those who retire, experience
a work-limiting disability, lose a parent or spouse, or lose a job through no fault of their
own.
4
 The economic and social benefits from these programs go beyond just helping
reduce poverty in the current generation.
 Increased access to SNAP for children has been found to lead to better health and
greater economic self-sufficiency in adulthood.
 Increased family income in childhood from the EITC and CTC leads to higher student
achievement.
 The long-term effects of Head Start and other high-quality preschool programs include
higher educational attainment, employment, and earnings, and lower rates of teen
pregnancy and crime, as beneficiary children become teenagers and young adults.
 President Obama’s policies to restore economic security and increase opportunity
have helped reduce poverty.
 The Affordable Care Act ensures all Americans have access to quality, affordable health
insurance, by providing the resources and flexibility states need to expand their
Medicaid programs to all people who are in or near poverty as well as financial help so
hardworking families can find a health plan that fits their needs and their budgets.
 The President significantly expanded the refundability of the Child Tax Credit, making it
available to millions of working parents who were previously ineligible. He also
expanded the EITC for larger families, who face disproportionately high poverty rates,
and for low-income married couples. Together these expansions benefit approximately
15 million families by an average of $800 per year. The President is proposing to make
these tax credit improvements permanent and also to raise the minimum wage.
 The Administration has advanced investments in early learning and development
programs and reforms for coordinated State early learning systems. President Obama
has proposed the expansion of voluntary home visiting programs for pregnant women
and families with young children; Early Head Start-Child Care Partnerships to improve
the quality of care for infants and toddlers; and high-quality preschool for every child.
 President Obama has advanced reforms of the nation’s K-12 education system to
support higher standards that will prepare students to succeed in college and the
workplace; pushed efforts to recruit, prepare, develop, and advance effective teachers
and principals; and encouraged a national effort to turn around our lowest-achieving
schools. The Administration has also put forward proposals to redesign the Nation’s high
schools to better engage students and to connect 99 percent of students to high-speed
broadband and digital learning tools within the next five years.
 President Obama has proposed Promise Zones where businesses partner with local
communities hit hard by the recession to put people back to work and communities can
5
develop and implement their own sustainable plans for a continuum of family and
community services and comprehensive education reforms.
 President Obama has proposed increased employment and training opportunities for
adults who are low-income or long-term unemployed, and summer and year-round
opportunities for youth along with reforms to our unemployment system to make it
more of a re-employment system, and community college initiatives to reform our
higher education system and support training partnerships with business in highdemand industries.
 Other achievements include making college more affordable by reforming student loan
programs, raising the maximum Pell Grant, and establishing the American Opportunity
Tax Credit which is the first partially refundable tax credit for college; placing 372,000
low-income youth into summer and year-round employment in 2009 and 2010;
improving access to school meal programs that help children learn and thrive; and
extending minimum wage and overtime protections to nearly all home care workers to
help make their jobs more financially rewarding.
The fundamental lesson of the past 50 years is that we have made progress in the War on
Poverty largely through bipartisan efforts to strengthen economic security and increase
opportunity. As our economy moves forward, rather than cut these programs and risk leaving
hardworking Americans behind, we need to build on the progress we have made to strengthen
and reform them. Going forward, we can’t lose sight of the positive part government can
continue to play in reducing economic hardship and ensuring access to economic opportunity
for all citizens. At the same time, sustainable improvements are only possible if we create jobs
and speed the economic recovery in the short run, raise economic growth in the long run, and
work to ensure that the benefits of a growing economy reach all Americans.
6
I.
Measuring Poverty: Who is Poor in America?
“We must open our eyes and minds to the poverty in our midst .”
1964 Economic Report of the President.
Michael Harrington’s influential 1962 book The Other America depicted the poor as inhabiting
an “invisible land,” a world described in the 1964 Economic Report of the President as “scarcely
recognizable, and rarely recognized, by the majority of their fellow Americans.” One early
achievement of Johnson’s War on Poverty was to cast light on the problem of poverty by
developing an official poverty measure that has been released by the government in each year
since August 1969.1 While reasonable at the time, this measure has turned out to be ill-suited
to capturing the progress subsequently made in the War. As a result, modern poverty measures
tell a different story of who is poor, and especially how this has changed over time.
Measuring Poverty
Measuring poverty is not a simple task; even defining it is controversial. Just starting with a
commonsense definition of the poor—“those whose basic needs exceed their means to satisfy
them”—requires difficult conceptual choices regarding what constitutes basic needs and what
resources should be counted in figuring a family’s means. There are no generally accepted
standards of minimum needs for most necessary consumption items such as housing, clothing,
transportation, etc. Moreover, our ideas about minimum needs may change over time. For
example, in 1963 even some middle-income households did not have hot and cold running
water indoors. Today, over 99 percent of households of all income levels have complete indoor
plumbing.
The Official Poverty Measure
Mollie Orshansky, an economist in the Social Security Administration, developed the official
poverty thresholds between 1963 and 1964 (Fisher 1992). At the time, the Department of
Agriculture had a set of food plans derived using data from the 1955 Household Food
Consumption Survey, the lowest cost of which was deemed adequate for “temporary or
emergency use when funds are low.” Because families in this survey spent about one-third of
their incomes, on average, on food, Orshansky set the poverty threshold at three times the
dollar cost of this “economy food plan,” with adjustments for family size, composition, and
whether the family lived on a farm.
1
A similar poverty measure was adopted internally by the Office of Economic Opportunity in 1965.
7
These income thresholds that were first used as the poverty thresholds for the 1963 calendar
year have served as the basis for the official poverty thresholds ever since. These dollar
amounts have been adjusted for inflation to hold the real value of the income needed to be
above poverty the same over time. There have been minor tweaks to the methodology
involving which price index is used to adjust for inflation, and how adjustments are made for
family structure and farm status.
FLAWS IN THE OFFICIAL POVERTY MEASURE
The official poverty measure (OPM) has several flaws that distort our understanding of both the
level of poverty and how it has changed over time. Perhaps the most significant problem with
the OPM is its measure of family resources, based on pre-tax income plus cash transfers (like
cash welfare, social security, or UI payments), but not taxes, tax credits, or non-cash transfers. As
such it inhabits a measurement limbo between “market poverty” (based on pre-tax, pre-transfer
resources) and “post-tax, post transfer poverty” reflecting well-being after taking into account
the impact of policies directed at the poor.
Several other shortcomings are more technical. First, the dollar value defining the cost of basic
needs, or the poverty threshold, was set in the 1960s and has been updated each year since
using an index of food prices at first, but then the Consumer Price Index (CPI) after 1969. The use
of the CPI is one source of the problems with the official measure that limits its usefulness for
historical comparison. Methodological advances in measuring prices (e.g., rental equivalence
treatment of housing costs, quality adjustments for some large purchases, and geometric
averaging for similar goods) have shown that the CPI overstated inflation substantially prior to
the early 1980s, leading to an inflated estimate of the cost of basic needs and thus higher
measured poverty over time. Revising the OPM measure using the CPI-U-RS (a historical series
estimated consistently using modern methods) results in a fall in poverty from 1966 to 2012 that
is 3 percentage points greater than that depicted by the official measure. Another flaw with the
OPM thresholds is that they do not accurately reflect geographic variation in costs of living or
economies associated with family size and structure.
All current income-based poverty measures, including both the OPM and the SPM, suffer from
large underreporting of both incomes and benefits. For example, Meyer, Mok, and Sullivan
(2009) show that in 1984, March CPS respondents reported only 75 percent of AFDC/TANF
dollars, and this fell to 49 percent in 2004. For SNAP benefits, which are accounted for in the
SPM but not the OPM, 71 percent of the value was reported in 1984 compared to 57 percent in
2004. Underreporting will tend to increase measured poverty, so increases in underreporting
over time understate the decline in the poverty rate during this period. The underreporting also
means that the estimated effects of government programs on poverty, as described in section III,
are likely to be conservative lower-bound estimates of the true effects.
8
In defining the family resources to be compared to the poverty line, Orshansky created the
thresholds to be applied to after-tax money income—the income concept used in the 1955
Household Food Consumption Survey. However, she was forced to use pre-tax money income
(including cash transfer payments) due to limitations in the Current Population Survey (CPS)
data, the only source of nationally representative information on income. At the time, this was
an adequate approximation of disposable income, as few low-income families had any federal
income tax liability or credits owed, and in-kind transfers were not a quantitatively important
feature of the safety net.
The Supplemental Poverty Measure
While Orshansky’s measure provided a reasonable depiction of poverty in the 1960s, it has not
aged well.2 Today, for example, the value of the two largest non-health programs directing aid
to the poor—the EITC and SNAP—are entirely ignored by the official measure, making it
impossible to assess the success of these tools in fighting poverty. Over the past five decades,
researchers have pointed to many flaws in the official measure (see box), leading to the
development of alternative measures of poverty with more comprehensive measures of both
family needs and resources. The Census Bureau created a Supplemental Poverty Measure
(SPM), which departs dramatically from the official measure in its methodology for calculating
both the poverty thresholds and family resources.3 This measure, first published in 2011,
calculates poverty thresholds using recent expenditures by families at the 33 rd percentile of the
expenditure distribution on an array of necessary items, including food, shelter, clothing, and
utilities.4 The dollar amount is calculated separately for families depending on whether they
own or rent their home and whether they have a mortgage, and then increased by 20 percent
to allow for other necessary expenses. Further adjustments are made based on differences in
family size and structure, and, unlike in the official measure, the threshold is adjusted for
geographic variation in living costs (Short 2013).
The Supplemental Poverty Measure also uses a more accurate measure of disposable income
that accounts for both a greater number of income sources and a wider array of necessary
expenditures. Unlike the official measure, the SPM uses a post-tax, post-transfer concept of
resources that adds to family earnings all cash transfers and the cash-equivalent of in-kind
transfers such as food assistance (for example, SNAP or free lunch) minus net tax liabilities,
which can be negative for families receiving refundable tax credits like the EITC or CTC.
Necessary expenditures on work and child-care are then subtracted from resources.
2
It should be noted that Orshansky herself noted many flaws with her measure, and believed it understated
poverty. She argued it measured income inadequacy rather than adequacy, stating “if it is not possible to state
unequivocally ‘how much is enough,’ it should be possible to assert with confidence how much, on an average, is
too little (Orshansky 1965).”
3
While we use the term ‘family’ here, the SPM differs in its definition of a ‘family unit’ when assuming the unit of
individuals over which resources are shared. Most importantly, the SPM includes all related individuals living at the
same address, but also cohabiting individuals and co-residing children in their care.
4
More accurately, the thresholds are based on average expenditures on food, clothing, shelter, and utilities
th
th
between the 30 and 36 percentiles of that distribution, multiplied by 1.2 to account for other necessary
expenses and adjusted for geographic differences in cost of living and family size and structure.
9
The Supplemental Poverty Measure also subtracts medical-out-of-pocket (MOOP) expenses
from families’ resources since those funds are not available to meet other needs. The SPM can
thus be thought of as a measure of deprivation with respect to non-health care goods and
services.5 However, it does not provide an accurate picture of the benefits of health care.
Instead, the SPM values health insurance only insofar as it reduces households’ out-of-pocket
medical costs and thus frees up resources for other uses. It misses benefits that may arise
because insurance improves access to health care and may therefore improve health outcomes,
or reduces stress caused by exposure to financial risk. As a result, the measured trend in SPM
poverty may understate progress in decreasing economic hardship since the War on Poverty
began by ignoring these benefits of increased access to insurance.
One important feature of the Supplemental Poverty Measure design is that the definition of
minimum needs is adjusted each year based on recent data on family expenditures on
necessities rather than adjusting a fixed bundle only for inflation. By considering families’
expenditures on an array of necessary items, including food, shelter, clothing, and utilities—and
then setting poverty rates based on how much families at the 33 rd percentile spend—the SPM
adjusts poverty thresholds as societies’ spending patterns on these necessities shifts.6 This type
of threshold is “quasi-relative,” in the sense that thresholds will tend to rise with income, but
are not directly tied to income as in a purely relative definition of poverty, such as setting a
threshold at half the median household income.
Alternatively, it is possible to create an “anchored” version of the Supplemental Poverty
Measure, which is the focus in this report. The anchored version, like the official measure, fixes
poverty thresholds based on expenditures on necessary items in a given year and then adjusts
only for inflation in each year. This version allows for the use of the more comprehensive
definition of resources in measuring poverty over time, while setting a fixed assessment of
what constitutes basic needs spending on food, shelter, clothing, and utilities. The anchored
measure is also more consistent with the vision of the War on Poverty architects, who believed
that poverty can be eradicated. Eliminating poverty defined with a relative measure may be
nearly impossible, as the threshold rises apace with incomes.7
5
Korenman and Remler (2013) argue that the SPM’s treatment of MOOP expenses actually does a poor job of
capturing even deprivation of non-health care goods and services. They argue that households that are able to
spend a large amount on health care are frequently those with substantial savings or other resources to draw on,
and they present evidence that households with high out-of-pocket expenses frequently score lower on “direct”
measures of hardship, like food insecurity.
6
So, for example, if families across the income spectrum spend more on, say, housing because preferences for or
the ability to pay for space or bathrooms change then what is considered necessary for minimum housing will
change.
7
The SPM is a hybrid, “quasi-relative” measure such that when spending on necessities increases, the threshold
defining who is poor also increases. Eliminating poverty is theoretically possible, but it depends on how a country’s
spending on necessities evolves as its income increases and requires spending on these goods to be stable even as
income grows.
10
Who is Poor?
In an attempt to “provide an understanding of the enemy” for Johnson’s War, the 1964
Economic Report of the President presented tables depicting the “topography of poverty.” As
Table 1 shows, some of the landmarks have changed since 1960 while many remain the same.
For 2012, the Table presents the poverty rates measured with both the official poverty measure
and the supplemental poverty measure.8 The official measure is displayed for comparing the
relative poverty of various groups in the two time periods, but should not be used for
comparing changes in the levels of poverty between the two time periods due to the flaws in
the official measure discussed above. The next section will provide trend data using a
consistent measure. Since historical estimates of the SPM are available only starting in 1967,
the table shows only official poverty rates for 1959 using the 1960 Census.
Table 1
Poverty Rates by Selected Characteristics
2012
1959
Offi ci a l
Poverty
Mea s ure
22.4
Offi ci a l
Poverty
Mea s ure
15.1
Suppl ementa l
Poverty
Mea s ure
16.0
Hea d worked l a s t yea r
17.8
10.0
10.5
Hea d di d not work l a s t yea r
55.7
27.4
29.2
Hea d ma rri ed
18.9
7.9
10.2
Hea d s i ngl e fema l e
47.4
29.1
28.9
Les s tha n hi gh s chool (a ge 25-64)
25.3
33.9
35.8
Hi gh s chool (a ge 25-64)
10.2
15.6
17.5
Col l ege (a dul ts 25-64)
6.7
4.5
5.9
Les s tha n 18
26.8
22.3
18.0
65 yea rs a nd ol der
36.9
9.1
14.8
Fema l e
24.9
16.4
16.7
Afri ca n Ameri ca n
57.8
27.3
25.8
Hi s pa ni c
40.5
25.8
27.8
As i a n
N/A
11.8
16.7
Na tive Al a s ka ns /Ameri ca n Indi a ns
N/A
34.2
30.3
Whi te
19.5
9.8
10.7
Immi gra nt
23.0
19.3
25.4
Di s a bl ed (a ge 18-64)
N/A
28.4
26.5
Al l peopl e
Hous ehol d cha ra cteri s tics
Indi vi dua l Cha ra cteri s tics
Li ves outs i de a metropol i ta n a rea
47.4
17.9
13.9
Note: Ca l cul a tions ba s ed on cha ra cteri s tics of hous ehol d hea ds excl ude
peopl e l i vi ng i n group qua rters .
Source: CEA ca l cul a tions ba s ed on 1960 Cens us a nd U.S. Cens us Burea u.
8
In this table we use the official Supplemental Poverty Measure statistics published by the Census Bureau (Short
2013), whereas for historical comparisons below we rely on historical estimates produced by Wimer et al. (2013),
described below. The series from Wimer et al. anchors its poverty measure at the 2012 SPM thresholds, so their
estimated poverty rates for 2012 are very similar to those in Table 1.
11
Employment
Unsurprisingly, unemployment is one of the strongest predictors of poverty. In 1959, 55.7
percent of individuals in households where the head was out of work for a full year were
poor—three times the rate of individuals in households where the head worked at least one
week during the year. While this rate has declined to 29.2 percent, individuals in households
where the head was out of work for a full-year were still three times as likely to be poor as
those in households where the head worked.
However, even full-time employment is not enough to keep all families out of poverty today. A
person working full-time, full-year in 2013 being paid the minimum wage earns $14,500 for the
year. These earnings alone leave such workers below the poverty threshold if they have even
one child. While the EITC, SNAP, and other benefits will help pull a family of two above the
poverty line, for a larger family—such as one with three children—full-time, full-year minimum
wage work combined with government assistance is unlikely to be enough to lift that family out
of poverty.
Education Level
Education’s role in poverty prevention has become more important over time: in 1959, highschool dropouts were 3.8 times more likely to be poor than college graduates; but in 2012, they
were 6.1 times more likely to be poor (based on the SPM measure). The growth in the poverty
gap by education is driven by growth in earnings inequality, which has led to much greater
earnings for college graduates than for those with less education.
Children
As in 1959, the child poverty rate today is higher than the poverty rate of the overall
population, though the SPM shows that children are disproportionately helped by our povertyfighting programs. Once taxes and in-kind transfers are taken into account, the gap between
child and non-child poverty falls. According to the official measure, the child poverty rate in
2012 was 22.3 percent—nearly 48 percent higher than the overall rate. But the official rate
ignores the contributions of the most important antipoverty programs for children: the EITC
and other refundable tax credits and SNAP. Including the value of these resources, the SPM
estimates that 18 percent of children are poor, a rate that is 12.5 percent (2 percentage points)
higher than the overall poverty rate.
The Elderly
One of the most heralded successes of the War on Poverty is the large reduction in elderly
poverty rates. In 1959, poverty rates were highest among the elderly with 36.9 percent of
people 65 and older living in poverty (based on OPM). Today poverty rates of those 65 and
older are below the national average. Using the SPM measure shows elderly poverty at 14.8
percent, however, more than 50 percent higher than the OPM measure. The reason for this
difference is that the SPM subtracts expenditures on medical expenses from a family’s
resources, and the elderly tend to have much higher medical expenses. Indeed, if the out-ofpocket medical costs were not subtracted, the measured elderly poverty rate would be only 8.4
12
percent—lower than their official poverty rate of 9.1 percent.9 In the absence of Medicare and
Medicaid, out-of-pocket medical expenses of the elderly would almost certainly cause their
poverty to be much higher than the SPM poverty rate of 14.8 percent.
Women
Women are more likely than men to be in poverty, with a 2012 poverty rate of 16.7 percent
compared to 15.3 percent among men. This gap largely reflects higher poverty among single
women, both those age 18-64 (22.9 percent compared to 20.2 percent among single men) and
those age 65 or older (21.2 percent compared to 16.1 percent among single men).
Childcare responsibilities help explain the poverty gap for single working-age women. Almost
one-third (31.0 percent) of single women age 18-64 lived with their children in 2012, among
whom the poverty rate was 27.5 percent. Just over one-third (35.2 percent) of single mothers
age 18-64 were employed full-time, full-year in 2012, compared to 44.6 percent of single
working-age males and 43.3 percent of single working-age women without children at home.
Increased support for childcare for young children has been shown to positively affect mothers’
employment hours and earnings (Connelly and Kimmel 2003; Misra et al. 2011). The high
poverty rate among older single women relative to men reflects a combination of lower Social
Security benefits due to lower lifetime earnings; lower rates of pension coverage; and greater
longevity that increases the chances of outliving their private savings (Anzick and Weaver 2001,
SSA 2012).
Race and Ethnicity
Poverty rates have fallen for all racial and ethnic groups over time and gaps by race have shrunk
slightly. However, troubling gaps still remain. In 1959, nearly three-fifths of African Americans
were in poverty, which was nearly three times the poverty rate of Whites. The fraction of
African Americans in poverty has fallen by more than half since then; yet at 25.8 percent, the
SPM poverty rate for African Americans is still more than double the rate of 10.7 percent for
Whites. Today, the SPM poverty rate among Hispanics is 27.8 percent, similar to that among
African Americans. However, this reflects smaller declines in poverty among Hispanics over the
past 50 years. Among both African Americans and Hispanics the official and supplemental
poverty rates tell similar stories. However, the SPM reveals that Asian Americans have a slightly
higher poverty rate than the national average—at 16.7 percent—whereas their OPM poverty
rate is lower than the national average. The higher SPM rate for Asian Americans reflects, in
part, the fact that they tend to live in high-cost metropolitan areas (e.g., Los Angeles, New York
City, etc.) and the SPM poverty thresholds are higher in such places due to its geographic
adjustments for cost of living. Finally, while we do not have measures of poverty among
American Indians and Alaska Natives in the earlier period, currently they have the highest rates
of poverty of any race and ethnicity group at 30.3 percent in 2012.
9
Accounting for out-of-pocket medical expenses raises measured poverty for nonelderly adults and children by 2.9
and 3.1 percentage points, respectively.
13
People with Disabilities
Over one-fourth of working-age people with disabilities are estimated to live in poverty, using
both the OPM (28.4 percent) and SPM (26.5 percent) measures. This largely reflects their low
employment rates. The effective poverty rate of people with disabilities may be understated
due to the extra costs that often accompany disability, such as for home and vehicle
renovations, assistive equipment, personal assistance, and other items and services that may
not be covered by insurance or government programs (Sen 2009: 258, She and Livermore 2007,
Fremstad 2009, Schur et al. 2013: 32-33).
Rural and Urban Communities
The official poverty measure overestimates rural poverty since rural communities tend to have
lower costs of living than urban areas and the official measure does not take geographic costof-living differences into account. However, the OPM has revealed that significant poverty
persists in rural communities throughout the country today. The Economic Research Service of
the U.S. Department of Agriculture estimates that eighty-five percent of persistent poverty
counties—counties that have been in high poverty (over 20 percent based on the OPM) for at
least 30 years—are in rural areas. The gap between poverty rates outside and within
metropolitan areas, though, has narrowed since 1959, when poverty rates outside metropolitan
areas were more than double the rates within these areas. In fact, the adjustments for different
housing costs across geographic areas in the SPM show that poverty rates are higher in
metropolitan areas than in rural areas today.10
10
This comparison may be affected by significant differences among geographic areas in costs other than housing,
such as transportation. In addition, there may be differences in housing quality that are not captured by the
differences in housing costs.
14
II.
Assessing the War on Poverty
“The elimination of income poverty is usefully thought of as a one-time operation in pursuit of a
goal unique to this generation. That goal should be achieved before 1980, at which time the next
generation will have set new economic and social goals, perhaps including a new distributional
goal for themselves”
Robert Lampman, CEA economist in the Johnson Administration, writing in 1971.
This section presents new historical estimates of the poverty rate from 1967 to 2012 based on
the Supplemental Poverty Measure and shows that substantial progress has been made in
reducing poverty since President Johnson began major policy initiatives as part of his fight
against poverty. In the past 45 years, the poverty rate fell from 25.8 to 16.0 percent—a
reduction of over one-third. The CEA documents that much of this decline was due to the
increased poverty-reducing effects of the safety net expansion set in motion during the Johnson
Administration. Based on a measure of pre-tax, pre-transfer income, the poverty rate would be
about as high today as in 1967: over 28 percent. These analyses show that safety net programs
lifted 45 million people from poverty in 2012, and between 1968 and 2012 prevented 1.2 billion
“person years” from living below the poverty line. This section first reviews changes in the
economy that provide context for understanding the lack of growth in market incomes in the
bottom part of the distribution over this time period. The section then presents estimates of
poverty trends since 1967 measured using modern methods.
Context
As noted in the quote beginning this section, the architects of the War on Poverty were
confident they would live to see poverty eradicated. Looking at the data at their disposal at the
time, it is easy to see how an analyst might have believed the end of poverty was on the
horizon. Figure 1 shows the trend in the official poverty measure—the only consistently
available measure tracking poverty until recently—from 1959 through 2012. Based on the trend
in poverty observed between 1959 and 1968, one would have indeed forecast—extrapolating
linearly—that poverty would be eradicated by 1980. Poverty fell by a remarkably consistent
rate of about 1.15 percentage points a year over that 10-year period, but the official poverty
measure stopped declining afterwards, reaching its lowest point in 1973.
As previously noted, the OPM is a measure of cash income that does not include non-cash
benefits or tax credits. While it does not accurately capture the trend in poverty over time, it is
nonetheless worth considering why the improvement in this measure of cash income slowed so
abruptly in the early 1970s. The first, and clearest, answer is that Social Security expansions
during the 1960s brought the rate of poverty among the elderly down rapidly before leveling in
the 1970s (Engelhardt and Gruber 2006). In 1959, 36.9 percent of those 65 and older were in
poverty, but by 1974 that fraction had fallen to 14.6 percent (based on the OPM). Over the next
38 years, the elderly poverty rate fell further to 9.1 percent in 2012. The deceleration in poverty
reduction is less pronounced for nonelderly adults and children. In fact, using the SPM measure
that accounts for expansions of the EITC and non-cash transfers, children’s poverty had greater
declines in the 1990s than in the 1960s or 1970s.
15
Figure 1
Growth in inequality also helped put the brakes on improvements in cash income for most
households. Economic growth is an important determinant of poverty (Blank 2000) as long as
the gains are shared with those in the bottom of the income distribution. When growth fails to
benefit the bottom, it cannot play a role in eradicating poverty. As such, the distribution of
income can have a profound impact on the level of poverty. While the real economy grew at an
annual rate of about 2.1 percent during the 1970s and 1980s, since 1980 economic growth has
not produced the “rising tide” heralded by President Kennedy, as rising inequality left incomes
at the bottom relatively unchanged (DiNardo, Fortin, Lemieux 1996, Piketty and Saez 2003,
Lemieux 2008). As shown in Figure 2, incomes in the top quintile of the income distribution rose
dramatically until the 2000s and are about 50 percent higher today than in 1973. By contrast,
real household incomes in the bottom 60 percent of the income distribution stagnated until the
mid-1990s expansion, and today are little changed from the business cycle peak in 1973.
Figure 2
16
A large group of poverty scholars have pointed to this rise in inequality as a leading explanation
for the lack of progress in reducing poverty since 1980 (for example, Blank 1993, Gottschalk and
Danziger 1995 and 2003, Hoynes et al. 2006).
The failure of the minimum wage to keep up with inflation is an important reason why
inequality increased in the 1980s (DiNardo, Fortin, and Lemieux 1996, Lee 1999), and progress
in the fight against poverty has slowed. President Johnson extended both the level and scope of
the minimum wage, with its peak reached in real terms in 1968. Since then the minimum wage
has risen and fallen, but today its level of $7.25 an hour is the same in real terms as in 1950. At
this level, even factoring in the subsidy provided by the EITC, a single parent of two kids
working full time would still have income near the poverty line.
Figure 3
Several studies have documented a tight link between the value of the minimum wage and
measures of wage inequality in the bottom part of the income distribution (Lee 1999, DiNardo,
Fortin, and Lemieux 1996). For example, as shown in Figure 3, changes in the ratio of the
median wage to the 10th percentile of the wage distribution (the “50-10 wage gap”)—a
measure of inequality in the bottom of the wage distribution—for women correlate very closely
with changes in the real value of the minimum wage. 11 The best research suggests that
increases in the minimum wage do not result in job losses large enough to undermine the goal
of raising incomes for the poor (Dube, Lester, Reich 2010). Moreover, a recent meta-analysis by
Doucouliagos and Stanley (2009) covering over 1,000 estimates of minimum wage effects finds
“no evidence of a meaningful adverse employment effect.” Finally, a recent analysis and review
11
The figure updates an analysis in Lemieux (2008), who graciously shared data.
17
of the literature by Dube (2014) finds consistent evidence across studies that a 10 percent
increase in the minimum wage decreases the poverty rate by about 2.4 percent.
Another important factor in rising inequality and slow wage growth among low- and middleincome workers has been the decline in unionization. The percent of U.S. workers represented
by unions has nearly halved from 23.5 percent in 1983 to 12.5 percent in 2012.12 This decline
has contributed to inequality because unions reduce inequality by raising the wages of low- and
middle-income workers and compressing the returns to skill (DiNardo et al. 1996, DiNardo and
Lemieux 1997).
Many observers have implicated various demographic changes—most prominently, increased
immigration and a decline in two-parent families—as additional factors behind the lack of
progress in market incomes in the lower part of the distribution. The recent literature on
immigration rejects the claim that competition from immigrants has had a meaningfully
adverse effect on the wages or poverty rates of native workers (Peri 2013). Because the
country-of-origin composition of immigrants has increasingly shifted towards poorer countries,
however, immigration has had a mechanical effect on poverty rates. Card and Raphael (2013)
estimate that changes in the population shares and the country of origin of the foreign born
increased overall poverty rates (based on OPM) by 3.7 percentage points between 1970 and
2009. While some immigrant households that may have seen their incomes rise as a result of
coming to the United States, many still fall below the poverty line here. But other analysts
focusing on different time periods generally find much smaller compositional effects. For
example, Hoynes et al. (2006) find that increased immigration accounts for only a 0.1
percentage point increase in poverty between 1979 and 1999.
Another dramatic change that has occurred since the 1960s is a large increase in the number of
people living in single-female headed households. As shown in Table 1, individuals in such
households typically have double the poverty rates of the national average, so this change also
tends to increase the poverty rate. Using decomposition techniques, Hoynes et al. (2006) show
that changes in family structure alone accounted for a 3.7 percentage point increase in the
(OPM) poverty rate between 1967 and 2003.13 In fact, women’s poverty rates declined over
this time period, however, since their educational attainment, labor force participation, and
earnings increased and they had fewer children, all of which reduced their poverty rates (Reed
and Cancian 2001). Moreover, changes in family structure can both cause and be caused by
changes in economic circumstances.
The last three decades have also seen a historic rise in incarceration, which has led to greater
poverty. The fraction of the population in prison rose from 221 per 100,000 in 1980 to 762 per
100,000 in 2008 (Western and Pettit 2010).14 In the short term, imprisonment removes wage
12
Retrieved from http://data.bls.gov/cgi-bin/surveymost?lu, December 10, 2013.
Like all decompositions, the reference period matters. If the decomposition is performed using 2009 poverty
rates rather than those in 1970, the predicted increase is 2.8 percentage points.
14
Research suggests the increase is driven primarily by increased sentencing severity rather than increases in
criminal activity (Caplow and Simon 1999, Nicholson-Crotty and Meier 2003).
13
18
earners from the family, which reduces their family’s income and increases the probability of
their children growing up in poverty. For example, Johnson (2008) finds that child poverty
increases by 8.5 percentage points and family income falls by an average of $8,800 while a
father is in prison.
There are also long-term negative impacts on earnings from incarceration that lead to higher
rates of poverty among those with a criminal record. Offenders’ wages are lower by between 3
and 16 percent after incarceration (Raphael 2007; Western 2002) and employment and labor
force participation are also negatively affected. Research shows that each additional
percentage point of imprisonment of African American men is associated with a reduction in
employment or labor force participation of young African American men of approximately 1.0
to 1.5 percentage points. This relationship implies that the increases in incarceration over the
last three decades have reduced employment and labor force participation among young
African American males by 3 to 5 percentage points (Holzer 2007). Holzer also notes that while
the magnitude of the effect of incarceration on White and Latino offenders is less clear, most
studies find that their experience with employment and labor force participation after
incarceration is similar to that of African American men.
Together the factors described above created headwinds in the fight on poverty. Evaluating the
precise impact of these factors is beyond the scope of this report, but it is likely that their
combined influence was to exert modest upward pressure on poverty rates. As we shall see
below, the fact that “market poverty” stayed relatively constant over this time period suggests
that improvements in education or other factors may have offset the adverse effects of these
demographic and other changes. Previous studies based on the OPM support this notion. For
example, Mishel et al. (2013) suggest that the impact of increases in education in reducing
poverty were slightly greater than the adverse impact of changing demographics.
Correcting the Historical Account of Poverty Since the 1960s
The official poverty measure introduced by President Johnson’s administration ignores, by
design, the most important antipoverty programs introduced during and after the War on
Poverty. In particular, resources from nutrition assistance, tax credits for working families, and
access to health insurance are not considered when computing whether a family is poor by the
traditional metric.
The Census Bureau has published the Supplemental Poverty Measure only as far back as 2009.
But recent research by poverty scholars on alternate measures of poverty all find that the
official poverty rate displayed in Figure 1 dramatically understates the decline in poverty since
the 1960s (Fox et al. 2013, U.S. Census Bureau 2013, Meyer and Sullivan 2013, Sherman 2013).
Work by Wimer, Fox, Garfinkel, Kaushal, and Waldfogel (2013) is particularly valuable since
they estimate poverty rates from 1967 to 2012 following the SPM methodology for computing
family resources. They also measure poverty using an “anchored” measure that uses a fixed
19
poverty threshold based on expenditures on necessary items in 2012, adjusted only for inflation
in each year (with inflation measured using a historically consistent series, the CPI-U-RS).15
Figure 4
Figure 4 shows a striking fact: poverty has declined by 38 percent since 1967, according to the
anchored SPM measure. And, unlike the OPM, it continued to fall after the early 1970s. The
figure shows the evolution of the poverty rate using the anchored SPM measure of poverty
from 1967 to 2012, compared with the official poverty rate reproduced from Figure 1. Using the
more accurate SPM measure of family resources changes the historical account of poverty in
the United States significantly: between 1967 and 2012, poverty rates fell by 9.8 percentage
points—from 25.8 to 16.0 percent. The trend in the SPM depicted in Figure 4 is very similar to
that of an alternative measure of poverty based on consumption data, which Meyer and
Sullivan (2013) argue is a better measure of material hardship (see box).
Figure 4 shows that the fraction of Americans in poverty fell smoothly between 1967 and 1979
to a low of 17.4 percent, a period where the discrepancy with the trend shown by the official
measure is driven primarily by more accurate accounting for inflation in the 1970s. After rising
steeply during the double-dip recession of the early 1980s, poverty rates fell slightly until rising
again with the early 1990s recession.
15
The ‘anchored poverty’ measure allows progress to be measured against a constant definition of living
standards. Using the SPM methodology of updating poverty thresholds each year to reflect rising expenditures on
food, clothing, shelter, and utilities shows less of a decline in poverty since the real value of the poverty thresholds
rise over time (Fox et al. 2013). Data constraints prevent Wimer et al. (2013) from following the SPM methodology
exactly. The most important discrepancy from the Census procedure is that Wimer et al. do not adjust the poverty
thresholds for geographic differences in living costs. It is worth noting that an alternative measure anchors poverty
thresholds based on necessary expenditures in 1967, and adjusts for inflation each year afterwards. Both measures
show similar declines in poverty, but using expenditures in 2012 gives a higher level of poverty in every period
since increased real spending on necessities over time has led to a higher SPM poverty threshold.
20
A CONSUMPTION POVERTY MEASURE
Consumption-based poverty measures the amount households spend relative to a threshold
on goods and services, and estimated “service flows” from large, infrequent purchases like
housing and automobiles. Meyer and Sullivan argue in a series of papers (2003, 2012a, 2012b,
2013) that consumption provides a better measure of resources for low-income households
since it reflects accumulated assets, expected future income, access to credit, assistance from
family and friends, non-market income, and the insurance value of government programs.
They also argue that consumption data are more accurately reported relative to some safety
net benefits included in the SPM, especially for households in or near poverty.
The figure shows the trend in Meyer and Sullivan’s (2013) measure of consumption poverty,
updated through 2012 and normalized to have the same level as the SPM measure in 2012.
Although the underlying methodologies differ, the trends in consumption poverty and SPM
income poverty have been remarkably similar over time. For example, the declines in poverty
between 1972 and 2012 shown by each measure are nearly identical.
It is difficult to identify the effects of particular government programs on consumption poverty
because one cannot easily identify and remove the consumption derived from particular
government programs as one can with income under the SPM. However, the fact that the two
measures are similar suggests that underreporting of benefits has little impact at the margin of
determining whether someone is poor. Additionally, the similarities in the measure suggest
that spending through savings or borrowing from friends and family is rarely able to keep
someone out of poverty.
21
In contrast to the depiction of the OPM, the steepest declines in the fraction of people in
poverty occurred during the economic expansion of the 1990s. During that period, poverty fell
from 21.5 percent in 1993 to 15.3 percent in 2000, the lowest poverty rate observed since
1967. As shown in Figure 2, economic growth in the 1990s provided a strong boost to lowincome households as earnings grew even in the bottom quintile of incomes, in contrast to the
experience of any other decade since the 1960s. Dramatic increases in the value of the EITC
leveraged this upswing in the labor market to further encourage work and channel even more
resources to low-income working families.
One last, and remarkable, fact shown in Figure 4 is that the poverty rate ticked up only slightly
during the Great Recession after remaining steady for most of the 2000s. Despite the largest
rise in unemployment since the Great Depression, the poverty rates rose by only 0.5
percentage points overall between 2007 and 2010. As discussed below, this shows how
effective the safety net and its expansion through the 2009 American Recovery and
Reinvestment Act (the Recovery Act) have been. Since much of the credit for this is due to
expansions in SNAP and tax credits, the official poverty rate fails to capture this crucial success.
The poverty rates for children and for working-age adults follow a similar pattern to the overall
trend shown in Figure 4. The fraction of children living in poverty declined from 29.4 percent in
1967 to 18.7 percent in 2012; and for working-age adults, the poverty rate fell from 19.8 to 15.1
percent over the same period. For the elderly, the trend in poverty is one of near continuous
decline. Poverty fell quite rapidly up until the early 1980s, driven by large growth in per capita
Social Security payments, from 46.5 percent in 1967 to 20.7 percent in 1984. Elderly poverty fell
further during the 1990s expansion to a low of 16.5 percent in 1999, and then ticked up slightly
in the 2000s. Driven in part by the Recovery Act stimulus payments, elderly poverty declined
from 17.6 percent to 15.2 percent between 2007 and 2009, and it remains at that level in 2012.
Measuring the Direct Impact of Antipoverty Efforts
The fact that poverty rates have fallen overall, even as household incomes in the bottom of the
distribution have stagnated since the 1980s, suggests a substantial direct role that policies have
played in improving the well-being of the poor. Wimer et al. (2013) estimate the magnitude of
this impact by constructing “counterfactual” poverty measures that simulate the fraction of the
population that would have been poor in the absence of all government transfers, including the
overall tax system. 16 In other words, they estimate the fraction of families that would have
incomes below the poverty line if the value of all cash, in-kind, and tax transfers they received
(or paid if the family owed taxes on net) were not counted. Comparing the difference between
this measure of “market poverty” and the SPM poverty rate provides a measure of the
reduction in poverty accounted for by government transfers. Figure 5 shows the results of this
16
While this is a ‘static’ exercise in that it assumes that individual earnings themselves are not affected by the
existence of safety net programs, this report later reviews research on the effects of programs on employment and
earnings and finds that such effects are generally small where they exist, and not large enough to meaningfully
alter the conclusions from this simplification (Ben-Shalom, Moffitt, and Scholz 2010).
22
analysis. The height of the overall shaded region indicates the poverty rate counting only
market income, while the height of the region shaded in black is the SPM poverty rate shown in
Figure 4. The difference, shaded in green, represents the percentage of the population lifted
from poverty by the safety net and the net effect of the tax system.17
Figure 5
In part because of the rising inequality in earnings described above, market poverty increased
over the past 45 years by 1.7 percentage points from 27.0 percent in 1967 to 28.7 percent in
2012. In contrast, poverty rates that are measured including taxes and transfers—these taxes
and transfers are the green shaded region in the Figure—fell through most of this period.
Government transfers reduced poverty by 1.2 percentage points in 1967. This impact grew to
about 7.4 percentage points by 1975 due to the expansion of the safety net spurred by the War
on Poverty, and hovered around that level until the Great Recession when it increased to 12.7
percentage points in 2012.
Despite an increase in “market poverty” of 4.5 percentage points between 2007 and 2010, the
actual SPM poverty rate rose only 0.5 percentage points due to the safety net. In fact, the 2009
Recovery Act reduced poverty by 1.8 percentage points in 2010 through its extensions to the
safety net as discussed below. Overall, for the entire 45-year period, the poverty decline of 9.8
17
There are two counterfactuals estimated by Wimer et al. that are used in this report to discuss the impact of the
safety net. For most estimates of the impact of the safety net we use a counterfactual poverty rate that strips
away (“zeroes out”) all cash and in-kind transfers, as well as refundable tax credits but continues to subtract any
“normal” tax liability from family resources. In this section, we define “market poverty” similarly, only this measure
additionally zeroes out all tax liabilities. Since poor families near the poverty line tend to have positive tax
liabilities, market poverty rates are slightly—about 1.8 percentage points in 2012—lower (since we assume
families can keep the taxes they in fact must pay).
23
percentage points is almost entirely accounted for by the increased effectiveness of the safety
net. 18
Figure 6 shows a similar analysis of the effect of the safety net on trends in deep poverty and
highlights two important features of the safety net often overlooked. First, the safety net
improves the well-being of many more individuals than is reflected in the standard accounting
of how many individuals are lifted from poverty: in 2012, about one in twenty (5.3 percent)
Americans lived in deep poverty, yet without government transfers the number would be closer
to one in five (18.8 percent).
Second, the safety net almost entirely eliminates cyclical swings in the prevalence of deep
poverty. Figure 6 shows that despite large increases in deep market poverty driven by the
business cycle, there is little if any rise in actual deep poverty due to the supports provided by
the safety net.
Figure 6
Again, this phenomenon is especially visible during the Great Recession, when the prevalence
of deep poverty ticked upward by only 0.2 percentage points despite an increase in market
deep poverty of 3.3 percentage points. This corresponds to more than 9.6 million men, women,
and children prevented from living below one-half the poverty line during the Great Recession.
Over the 45 years shown in the Figure, deep “market poverty” actually rises from 14.9 to 18.8
percent. Despite that increase, the fraction of those in deep poverty fell from 8.2 to 5.3
percent.
18
As described earlier, the underreporting of government income and benefits means that this is likely to be a
conservative lower-bound estimate of the effect of the safety net.
24
WOMEN AND POVERTY
While women continue to have a higher poverty rate than men, the gap has decreased over time as
poverty has fallen more for women than for men. The following chart shows that the gap between
working-age women and men has decreased from 4.7 percent to 1.7 percent from 1967 to 2012.
The decline in the poverty rate among women has been tempered by an increase in the number of
single mothers, who have higher rates of poverty. The share of working age women who are single
mothers rose from 11.6 to 16.1 percent between 1967 and 2012. Had the poverty rates of
demographic groups (based on marriage and motherhood only) remained as they were in 1967, this
change would have increased poverty rates for working age women by 2.1 percentage points. In fact,
poverty rates of women in all marriage and motherhood groups fell due to increased work, rising
education, and smaller families (Cancian and Reed 2009), as well as to the increased impact of the
safety net described in this report.
The effect of government transfer and social insurance programs on poverty is slightly larger for
women than for men. These programs reduced the 2012 poverty rate by 8.1 percentage points for
women compared to 6.4 percentage points for men. This gender difference has been fairly stable
over time, indicating that growth in these programs does not explain the narrowing poverty gap
shown above. Rather, the closing of the gender poverty gap appears to be due to increases in
women’s education and employment rates relative to men.
25
III.
The Role of Antipoverty Programs: A Closer Look
“Poverty … has many faces. … Its roots are many and its causes complex. To defeat it requires a
coordinated and comprehensive attack. No single program can embrace all who are poor, and no
single program can strike at all the sources of today’s and tomorrow’s poverty.”
1964 Economic Report of the President.
This section presents further detail on antipoverty effects of specific components of the safety
net. In particular, it highlights the impact that different groups of programs—cash transfers, inkind transfers, and tax credits—have on the poverty rates of different age groups. It also shows
how the relative importance of programs for nonelderly adults and children has changed since
the start of the War on Poverty.
The section then refutes the concern critics have raised that the existence of safety net
programs may undermine growth in market incomes as well as our efforts to fight poverty. The
social safety net has increasingly been designed to reward and facilitate work increasing
participation rates—in many cases, requiring work. Even where programs are not explicitly
designed to require work, the highest-quality studies suggest that adverse earnings effects of
safety net programs are nonexistent or very small, in part due to reforms over the past two
decades that, for example, have phased out benefits gradually with increases in earnings to
minimize disincentives to work.
Finally, this section presents findings on the level of economic mobility of individuals born into
poverty in the United States, and the results of recent research showing the potentially large
returns to social spending in terms of long-term outcomes of children in families receiving
support.
Antipoverty Effects of Specific Programs
This section illustrates the role that various antipoverty programs have had in improving the
well-being of different populations, and how the relative impacts of these programs have
evolved since the War on Poverty began. It is based on an effectively “static” analysis that
zeroes out income derived from various public programs to ask what effect this would have on
poverty. The next subsection considers some of the broader impacts that these programs have
on employment and earnings.
Table 2 shows the impact of various safety net programs on overall poverty, and for three
separate age groups: children, adults age 19 to 64, and elderly adults age 65 and over. The
safety net program with the single greatest impact is Social Security, which provides income to
the elderly, people with disabilities, and surviving spouses and children, reducing the overall
poverty rate by 8.5 percentage points in 2012. The program’s impacts on elderly poverty are
profound: without Social Security income, the poverty rate of the elderly would be 54.7
percent, rather than its rate of 14.8 percent in 2012. On the other end of the age spectrum,
refundable tax credits like the Earned
26
Table 2
Poverty Rate Reduction from Government Programs, 2012
All People
Children
Nonelderly
Adults
65 Years
and Older
Social Security
8.56
1.97
4.08
39.86
Refundable Tax Credits
3.02
6.66
2.25
0.20
SNAP
1.62
3.01
1.27
0.76
Unemployment Insurance
0.79
0.82
0.88
0.31
SSI
1.07
0.84
1.12
1.21
Housing subsidies
0.91
1.39
0.66
1.12
School lunch
0.38
0.91
0.25
0.03
TANF/General Assistance
0.21
0.46
0.14
0.05
WIC
0.13
0.29
0.09
0.00
311,116
74,046
193,514
43,245
Population (Thousands)
Note: Data are presented as percentage points.
Source: Department of Commerce, Census Bureau.
Income Tax Credit and the Child Tax Credit have large impacts on child poverty— reducing the
fraction of children in poverty by 6.7 percentage points. Tax credits also reduce the poverty
rates of nonelderly adults by 2.3 percentage points. The Supplemental Nutrition Assistance
Program also has a dramatic effect on poverty, reducing child poverty by 3.0 percentage points
and overall poverty rates by 1.6 percentage points.
Finally, unemployment insurance reduced poverty by 0.8 percent overall in 2012. This effect, as
with the effects for other programs, was less than at the height of the Great Recession when
more people were without work: in 2010, for example, unemployment insurance reduced
poverty by 1.5 percentage points overall (Short 2012).
As noted, all of these estimates ignore the incentives to alter work behavior created by
government programs and are not definitive causal estimates of the impact of the different
programs on poverty. For example, Social Security may affect market incomes by changing
retirement and savings incentives. Similarly, the estimates do not take into account the role
that UI plays in keeping people attached to the labor force, or that the EITC plays in
incentivizing additional hours of work and participation in the labor force. The importance of
these considerations is discussed below.
Even programs with a small impact on overall poverty rates may be very effective in reducing
poverty for certain populations or in alleviating hardship without lifting individuals out of
poverty. For example, SSI reduces poverty rates by 1.1 percentage point overall, but this
represents a large poverty reduction concentrated among a relatively small number of lowincome recipients who are elderly or have a disability. TANF and General Assistance (state
programs which typically provide limited aid to very poor individuals not qualifying for other
aid) have only a small impact on the overall poverty rate at 0.2 percentage points, as TANF
benefits are generally insufficient to bring people above the poverty level. However, by raising
the incomes of those in poverty these programs have a much greater impact on reducing deep
poverty.
27
Based on their historical estimates of SPM poverty rates, Wimer et al. (2013) conduct similar
analyses to those in Table 2 for each year since 1967 for different groups of safety net
programs. Their results shed light on how the safety net has changed over the past 50 years.
In aggregate, the antipoverty effects of three types of federal aid programs—support through
cash programs like Social Security, SSI, and TANF; in-kind support like SNAP and housing
assistance; and tax credits like the EITC and CTC—all increase over time, driving down overall
poverty rates. The steady increase in the effect of each type of program masks some
differences across the populations served by each program. For the elderly, for example, the
trend is dominated by the growing real value of Social Security payments steadily driving down
the elderly poverty rate.
SOCIAL PROGRAMS SERVE ALL AMERICANS
While the safety net provides crucial support for families in poverty, far more Americans benefit
from the safety net than are poor in any given year. Of course, all Americans benefit from Social
Security and Medicare support for the aged, shielding both them and their families from low income
in retirement and the costs of adverse health shocks. And many people benefit from social insurance
programs that are not means-tested. For example, nearly half of all Americans will benefit from
unemployment insurance at some point over a 20-year period.
But even programs targeting primarily low- income families serve a very high fraction of Americans
at some point in their lives. A recent studying using administrative tax records from 1989 to 2006
found that over 50 percent of tax -filers with children benefited from the EITC at some point over the
19 year period (Dowd and Horowitz 2011). Moreover, CEA analysis of the National Longitudinal
Study of Youth 1979 finds that of all individuals aged 14 to 22 in 1979, over the 32-year period from
1978 to 2010:
 29.6 percent benefitted from SNAP;
 34.3 percent received support from SNAP, AFDC/TANF, or SSI; and
 69.2 percent received income from SNAP, AFDC/TANF, SSI, or UI.
Looking at a broader array of programs, a large fraction of the population benefits in any given year
as well. According to the 2013 Annual Demographic and Economic Supplement of the Current
Population Survey, nearly half (47.5 percent) of all households received support from either
refundable tax credits, SNAP, Unemployment Insurance, SSI, housing assistance, school lunch, TANF,
WIC, Medicaid or Disability Insurance.
An important feature of the safety net that is often overlooked: for most programs the majority of
beneficiaries receive assistance for only a short period when their earnings drop for some reason,
and then they bounce out again. Research has shown, for example, that 61 percent of all EITC
recipients claimed the credit for two years or less (Dowd and Horowitz 2011); and, half of all new
SNAP participants in the mid-2000s left the program within 10 months.
28
For children, however, there is a shift in importance of the safety net’s different components.
Figure 7 shows the effect of eliminating various components of the safety net resources on the
SPM poverty rate in three years corresponding to recession-driven peaks of the poverty rate. In
the early 1970s recession, AFDC, and food stamps to a lesser extent, played the most important
role in alleviating childhood poverty; and the EITC had not yet been introduced. Both in-kind
transfers and the EITC had a small impact on child poverty in the early 1990s recession, but cash
transfer programs still outweighed the poverty-reducing impact of both programs put together.
During the Great Recession, however, we see that in-kind aid, cash-assistance, and tax credits
all played similarly important roles in reducing poverty for families with children. This shift
reflects both the large structural change away from cash welfare assistance during the 1990s,
and expansion of both SNAP and tax credits through the Recovery Act.
Figure 7
Figure 8 is similar to Figure 7, only showing the impact of various transfer programs on deep
poverty, or the fraction of individuals with incomes below 50 percent of the poverty threshold.
This figure shows that for deep poverty, in-kind transfers have become the most important
safety net program over time, and tax credits are less effective due to the paucity of work
among families with very low resources.
29
Figure 8
The Effects of Antipoverty Programs on Work and Earnings
In his remarks before signing the cornerstone legislation of the War on Poverty, the Economic
Opportunity Act, President Johnson declared: “Our American answer to poverty is not to make
the poor more secure in their poverty but to reach down and to help them lift themselves out
of the ruts of poverty and move with the large majority along the high road of hope and
prosperity. The days of the dole in our country are numbered.” He went on to describe the
need to provide the poor with the means to lift themselves out of poverty through job training
and employment services, among other strategies. In the past 20 years, this emphasis on
promoting work through antipoverty programs intensified and we made dramatic changes to
cash welfare and other programs that shifted the focus toward requiring or rewarding work.
The most important shift began when President Richard Nixon introduced the Earned Income
Tax Credit in 1975. The EITC was expanded multiple times in the 1980s, 1990s, and 2000s as the
safety net shifted increasingly toward work-based support. The EITC was expanded most
recently in the 2009 Recovery Act, with those improvements extended in 2010 and 2013. Since
1996, the EITC has accounted for more support for low-income households than traditional
cash welfare. Today, the EITC and the partially refundable Child Tax Credit total $77 billion
annually, nearly four times as the expenditures on the Temporary Assistance for Needy Families
program (see Figure 9).
30
Figure 9
Because the EITC is a supplement to labor market earnings, the credit provides strong
incentives for those with otherwise low labor force attachment to increase their hours of work.
However, because the credit is reduced as earnings continue to rise, it may also provide those
with earnings above the phase-out threshold—above $22,870 for a married couple with three
children—an incentive to reduce their earnings. Several studies have addressed these incentive
effects, and reach similar conclusions: the EITC is associated with increased labor force
participation, especially among single mothers, but it does not appear to substantially alter the
hours or earnings of those already working (Eissa and Liebman 1996, Liebman 1998, Meyer and
Rosenbaum 2001, Hotz and Scholz 2003, and Eissa and Hoynes 2005).19 Taken together, these
results suggest EITC expansions played an important role in increasing labor force participation
among single mothers, without adversely affecting hours worked by those already working.
Meanwhile, the 1996 welfare reform law replaced AFDC with TANF and significantly
strengthened work requirements in the cash assistance program. The Personal Responsibility
and Work Opportunity Reconciliation Act of 1996 ended the entitlement to cash assistance and
beneficiaries were generally required to work or participate in “work activities” to receive
assistance. Moreover, the implicit tax rate on benefits in response to increased earnings—the
19
For example, Meyer and Rosenbaum (2001) suggest that EITC expansion accounts for about 60 percent of the
roughly 10 percentage point rise in single mothers’ employment rates relative to single mothers without children
between 1984 and 1996.
31
benefit reduction rate—was reduced dramatically in many states. Matsudaira and Blank (2013)
show that these changes increased the return to work, with potential income gains of over
$1,842 (in 2000 dollars) for welfare recipients working 30 hours a week. At the same time, it
should be noted that researchers have found these reforms may have increased hardship
among groups with high barriers to employment, highlighting the continued importance of
programs that serve the most disadvantaged (Blank 2007; Turner, Danziger, and Seefeldt 2006).
While today’s safety net has been reformed to promote work, it is important to note that
careful research has shown that most assistance programs have only small, if any, disincentive
effects on work. This suggests that the “static” estimates of the antipoverty effects of the
programs shown above largely capture the actual full impact of these programs including any
employment disincentives they may have—and may understate the poverty-reducing impacts
of programs that effectively reward and facilitate work and thus increase market earnings. For
example, examining labor supply behavior of individuals in the Oregon Health Insurance
Experiment, Baicker et al. (2013) find that Medicaid recipients are not less likely to be
employed nor do they earn less than they otherwise would have. Similarly, Hoynes and
Schanzenbach (2007) study the initial rollout of SNAP (then food stamps) and find only small
effects on labor supply. While there are no studies of the employment effects of the TANF
program with its work requirements, prior studies of AFDC and the Negative Income Tax
experiments of the 1970’s suggest only modest disincentive effects of a program without an
emphasis on work. Burtless (1986) found that a dollar of benefits reduces work earnings by 20
cents (total income is increased by 80 cents), but other evidence suggests the disincentive
effects may have been even smaller (SRI International 1983).
Evaluating the weight of the evidence for all programs, Ben-Shalom, Moffitt, and Sholz (2012)
conclude that the work disincentive effects of antipoverty programs have “basically, zero”
effect on overall poverty rates. Going program by program, they conclude the behavioral
effects of TANF are likely zero, and that the work disincentives induced by disability insurance,
Medicare, and Unemployment Insurance might reduce the estimated “static” antipoverty
effects of those programs by one-eighth or less. Although housing assistance provides
significant benefits to some of the poorest households including the homeless, its effects on
labor supply among those of working age and free of disabilities are relatively modest. Shroder
(2010) reports that the net negative impact of rental assistance on labor supply appears to vary
among subgroups, may change over time, and seems rather small relative to the amounts paid
out in subsidy. Jacob and Ludwig (2012) find that receipt of housing vouchers in Chicago during
the welfare reform era reduced employment by 3.6 percentage points among able-bodied
working-age individuals and reduced earnings an average 19 cents for each dollar of subsidies.
Carlson et al. (2011) find employment effects in the same range for Wisconsin voucher
recipients. Ben-Shalom et al. estimate that the poverty rate among housing assistance
recipients is 66.0 percent, and use the Jacob and Ludwig data to estimate that housing
assistance lowers the poverty rate among recipients by 8.2 percentage points rather than the
static estimate of 14.9 points. Finally, a recent study by Chetty, Friedman, and Saez (2012) of
the EITC on the earnings distribution also finds that “the impacts of the EITC … come primarily
through its mechanical effects.” They do find, however, that behavioral responses reinforce the
32
amplify the effects of the safety net on deep poverty, so that the overall impact of the EITC
might be somewhat greater than implied by the “static” estimates because of the increased
work induced by the program.20
Economic Mobility
When economic mobility is high, individuals and families can lift themselves out of poverty by
taking advantage of opportunities to improve their economic well-being. When economic
mobility is low, it is difficult to change one’s economic status and people may become stuck in
poverty. Mobility can be measured either as relative mobility—the likelihood of moving up or
down the income distribution—or absolute mobility, which is the likelihood of improving
economic well-being in general without necessarily moving up in the income distribution
(reflected in the saying, “a rising tide lifts all boats”). When there is low relative mobility, there
are few opportunities for poor people to improve their standing in society by moving up the
economic spectrum, and children from poor families are likely to continue to have low
economic and social status as they become adults, even if their material well-being improves.
When there is low absolute mobility, poor people and their children find it hard to escape the
economic and material hardships of poverty.
While economic mobility in the United States allows some people to escape poverty, many do
not. About half of the poorest individuals remain in the lowest fifth of the income distribution
after 10 and 20 years, and no more than one-fourth make it to one of the top three income
quintiles (Acs and Zimmerman 2008; Auten et al. 2013). Those who were in poor families as
children are estimated to have 20 to 40 percent lower earnings as adults compared to those
who did not grow up in poverty (Mayer 1997; Corcoran and Adams 1997; Corcoran 2001;
Duncan et al. 2012). Among the children of low-earning fathers, about two-fifths of sons and
one-fourth of daughters remained in the lowest earnings quintile when they became their
father’s age (Jantti et al. 2006). Consistent with this, one-third of children who grew up in the
lowest family income quintile were in the lowest quintile when they became adults (Isaacs
2008). More generally, studies find that about one-third to slightly less than one-half of
parents’ incomes are reflected in their children’s incomes later in life (Chetty et al. 2013, Black
and Devereux 2011, Lee and Solon 2009), indicating that parents heavily influence children’s
economic fortunes.
The results of these studies imply strong lingering effects from growing up in poverty. The
influence of poverty on future economic prospects stem not just from one’s own family status,
but from growing up in high-poverty neighborhoods that often have lower-quality schools,
lower-paying jobs, higher crime rates, and other conditions that can create disadvantages
(Sharkey 2009). Among children whose families were in the top three quintiles of family
income, growing up in a high-poverty neighborhood raises the likelihood of downward mobility
20
Unlike the earlier literature, they also find evidence of a slight downward adjustment of earnings for workers
near 200 percent of the poverty line. This is consistent with the predictions of static labor supply theory since that
level of earnings is in the phase-out region of the credit. This negative impact is small, however, and Chetty et al.
emphasize it is dominated by the (also small) positive impacts at low earnings levels.
33
(falling at least one quintile) by 52 percent (Sharkey 2009). A comparison across geographic
regions in the United States indicates that economic mobility is higher in areas with a larger
middle class, less residential segregation between low-income and middle-income individuals,
higher social capital, and lower rates of teen birth, crime, divorce, and children raised by single
parents (Chetty et al. 2013).
The above results mostly reflect relative mobility (moving up or down the economic spectrum).
While absolute mobility (improving economic well-being without moving up the economic
spectrum) has generally risen in the United States, the pace has slowed in recent decades.
Comparing cohorts of men in their 30’s, median personal income went up 5 percent from 1964
to 1994, but down 12 percent from 1974 to 2004 (Sawhill and Morton 2007). Counting all
family income, income went up 32 percent between 1964 and 1994, and only 9 percent
between 1974 and 2004. So the recent improvement in family income, which reflects the rising
employment of women, was only one-third as large as in the earlier period.21
Despite the popular view that the United States is the land of opportunity, this Nation appears
to have lower economic mobility than many other developed countries. Measuring mobility by
the strength of the dependence of children’s incomes on parents’ incomes, the United States
has similar mobility as the United Kingdom and Italy, but lower mobility than other European
countries as well as with Japan, Australia, and Canada (Solon 2002; Jantti et al. 2006; Corak
2006, 2011).
Can anything be done to increase mobility? A study of data on families over time (including
comparisons of twins and other siblings) found that genetics and shared upbringing play a
significant, but overall minor role, in explaining adult earnings differences, indicating that
environmental factors other than upbringing are largely responsible (Bjorklund et al. 2005).
Education appears to be one of the key factors that drives economic mobility. As shown in
Figure 10, among families in the bottom fifth of the income distribution, almost half (45
percent) of the children who did not obtain college degrees remained in the poorest fifth as
adults, while only one-sixth (16 percent) of the children who obtained college degrees
remained in the poorest fifth (Isaacs, Sawhill, and Haskins 2008: 95).
21
Using a different method to assess absolute mobility, about half of individuals moved out of the
bottom income quintile in the 1984-94 and 1994-2004 periods when the quintile thresholds were fixed
at the beginning of the period (Acs and Zimmerman, 2008).
34
Figure 10
The importance of education is also shown by the findings that economic mobility is higher in
countries that have a greater public expenditure on education (Ichino et al. 2009) and areas of
the United States that have a higher-quality K-12 education system (Chetty et al. 2013), and is
improved for children in the poorest one-third of families when states increase spending on
elementary and secondary education (Mayer and Lopoo 2008).
Intergenerational Returns
While much of the literature on mobility presented above is correlational, a handful of wellcrafted studies that track the long-run outcomes of children exposed to safety net programs
highlight the potential for investments in these programs to generate large returns.
Early childhood education has been found by many researchers to have dramatic, super-normal
returns in terms of more favorable adult outcomes. The Head Start program created early in
the War on Poverty has been heavily researched and the combined results show that it can
“rightfully be considered a success for much of the past fifty years” (Gibbs et al. 2013: 61).
Studies following children over time, and accounting for the influence of family background by
comparing siblings, found that Head Start participants were more likely to complete high school
and attend college (Garces et al. 2002), and scored higher on a summary index of young adult
outcomes that also included crime, teen parenthood, health status, and idleness (Deming
2009). The latter study found that Head Start closed one-third of the gap in the summary
outcome index between children in families at the median and bottom quartiles of family
income. Using a regression discontinuity research design that compared access to Head Start
across counties, Ludwig and Miller (2007) found positive impacts of Head Start on schooling
35
attainment, the likelihood of attending college, and mortality rates from causes that could be
affected by Head Start. Gibbs et al. (2013) suggest the combination of the benefits due to Head
Start might produce a benefit-cost ratio in excess of seven.
Randomized experiments studying the Perry Preschool Project, Abecedarian Project, Chicago
Child-Parent Centers, Early Training Project, and Project CARE programs largely confirm these
findings. A variety of well-done analyses find that the adult benefits for children—especially
girls—who participated included higher educational attainment, employment, and earnings
along with other benefits (Schweinhart et al. 2005; Anderson 2008; Campbell et al. 2008;
Heckman et al. 2007, 2010, 2011). Heckman and coauthors (2009) find that the returns to one
preschool program (Perry) exceed the returns to equities.
In the past decade, researchers have identified long-run linkages between early childhood
(including exposure in-utero) health interventions and long-term outcomes. For example,
Almond, Chay, and Greenstone (2006) document that the Johnson administration used the
threat of withheld federal funds for the newly introduced Medicare program to force hospitals
to comply with the Civil Rights Act mandate to desegregate, resulting in dramatic
improvements in infant health and large declines in the black-white gap in infant mortality in
the 1960s. Chay, Guryan, and Mazumder (2009) show these improvements in access to health
care and health soon after birth had echoes in the form of large student achievement gains for
black teenagers in the 1980’s, contributing to the decline in the black-white test score gap.
Their results are consistent with improved health care access and early childhood health
improving test scores by between 0.7 and 1 standard deviations—a very large impact that
implies large increases in lifetime earnings. For example, studying a different intervention
Chetty, Friedman, and Rockoff (2011) find the financial value (the net present value at age 12 of
the discounted increase in lifetime earnings) of a standard deviation increase in test scores to
be $46,190 per grade.
While it may not be surprising that human capital interventions have long-run returns, recent
studies have also found intergenerational effects on child outcomes from tax or near-cash
transfers to their parents. That is, recent evidence suggests that government transfers that
ameliorate child poverty by increasing family income have lasting, long-run benefits in terms of
better child outcomes. For example, Hoynes, Schanzenbach, and Almond (2013) study the
initial roll-out of the Food Stamp (now, SNAP) program between its initial pilot in 1961 and
1975. While Food Stamps are distributed as vouchers for food purchases, since their amount is
generally less than households spend on food the vouchers likely affect family behavior in the
same manner as increased cash income (Hoynes and Schanzenbach 2009). Hoynes and
coauthors find that exposure to Food Stamps led to improvements in adult health (reductions
in the incidence of high blood pressure and obesity) and, for women, increased economic selfsufficiency. Similarly, Dahl and Lochner (2012) and Chetty, Friedman, and Rockoff (2011) find
that family receipt of additional income from refundable tax credits improves the achievement
test scores of children in the family. Chetty and coauthors estimate that the implied increase in
adult earnings due to improved achievement as a child is on the same order of magnitude, and
probably greater, than the value of the tax expenditures.
36
The results discussed above highlight the crucial fact that government expenditures on the
safety net have a strong economic justification. Not only do they help to propel struggling
adults back onto their feet and protect them and their families from hardship, they improve
opportunity and the adult outcomes of their children. As such, the poverty-reducing impact of
these programs constitutes an important investment opportunity. To give a sense of the
magnitude of this opportunity, Holzer, Schanzenbach, Duncan and Ludwig (2008) estimate the
cost of childhood poverty at about $500 billion (in 2007 dollars) or about 4 percent of gross
domestic product annually in terms of foregone earnings, increased costs of crime, and higher
health expenditures and lower health.
While the Holzer et al. study is correlational (though it attempts to correct for hereditary
components of the intergenerational income correlation) the concern over bias in this estimate
is overwhelmed by its magnitude. Based on Census Bureau estimates, the total poverty gap—
the shortfall between family resources and the SPM poverty thresholds—among all families
with children is about $59.8 billion in 2012, or 0.37 percent of GDP. Even if the Holzer et al.
estimate was double the “true” causal effect of eliminating child poverty, the benefit would
exceed the added costs five-fold. These numbers create a powerful case for renewed efforts to
fight poverty.
37
IV.
The Obama Administration’s Record and Agenda to Strengthen
Economic Security and Increase Opportunity
“The idea that so many children are born into poverty in the wealthiest nation on Earth is
heartbreaking enough. But the idea that a child may never be able to escape that poverty
because she lacks a decent education or health care, or a community that views her future as
their own, that should offend all of us and it should compel us to action. We are a better country
than this.”
President Obama, December 4, 2013.
The programs created during the War on Poverty and refined since have provided crucial
support to Americans in need. But challenges clearly remain. In 2012, 49.7 million Americans,
including 13.4 million children, lived below the poverty line—an unacceptable number in the
richest nation in the world. There is clear evidence that antipoverty programs work, and we
must redouble our efforts to enhance and strengthen our safety net.
At the same time, we must realize that while antipoverty programs are doing heroic work to lift
struggling families from poverty, there is broad consensus among economists that a strong
national recovery in the short run, and stronger economic growth in the long run, are necessary
to sustain progress in the fight against poverty. Indeed, as our social safety net reinforces the
economic benefits of work by supplementing wages for low earners, a strong labor market with
jobs available for all is an essential partner in the fight against poverty. Given the growing
economic inequality in the past few decades, we must strive for balanced growth that benefits
all Americans. To do so, we must ensure that an economic expansion encompasses everyone,
and commit to giving all Americans opportunities for lifelong learning and skills development to
ensure a broad base of human capital that will be rewarded by good wages.
This section documents the Obama Administration’s record in continuing the fight against
poverty, and discusses the Administration’s proposals to strengthen the safety net and to
improve human capital and increase labor market earnings. These comprise a key part of the
broader economic strategy to further the recovery and increase growth—all of which combat
poverty.
Taking Immediate Action During the Economic Crisis
As the economy was sliding into the Great Recession, the Administration took action to
strengthen the safety net and prevent millions of Americans from falling into poverty. The
Recovery Act instituted a number of temporary antipoverty measures, including the creation of
the Making Work Pay tax credit worth up to $800 for a married couple, a $250 Economic
Recovery Payment for Social Security and SSI recipients; unemployment changes including an
additional $25 per week (for up to 26 weeks) to regular UI beneficiaries, increased federal
funding for the Extended Benefits program, incentives for states to modernize their UI system
to reach part-time workers and recent workforce entrants, and reauthorized Emergency
Unemployment Compensation; an increase in SNAP benefits; and an expansion of the
Community Services Block Grant (CSBG). The Recovery Act also delivered nearly $100 billion to
States, school districts, postsecondary institutions, and students to help address budget
38
shortfalls and meet the educational needs of all. This total included $10 billion for the Title I
Grants to Local Educational Agencies program, a flagship program of the War on Poverty’s
Elementary and Secondary Education Act of 1965, which currently serves more than 23 million
students in high-poverty schools, helping ensure access to a high-quality public education.
In addition it included expansions in tax credits that were intended to be made permanent. The
EITC expansion increased the credit for families with three or more children, reflecting the fact
that they have greater needs and higher poverty rates than families with two children. It also
reduced the penalty that some low-income families faced when getting married. Together
these two provisions benefit about 6 million households a year by an average of $500. In
addition, the partial refundability of the child tax credit for working families was expanded,
benefiting 12 million families by an average of $800 each. These changes were subsequently
extended through 2017 and the President is proposing to make them permanent.
The impact of these emergency measures on poverty was dramatic. From 2007 to 2012, the
poverty rate would have risen by 4.8 percentage points if individuals received no income from
tax credits and benefits like nutrition assistance and unemployment insurance. This would have
been the largest five-year rise in poverty in 50 years. But, when the poverty rate measurement
includes tax credits and benefits as part of income, poverty only rose 1.3 percentage points
from 2007 to 2012 (see Figure 5 above). By contrast, during the recession of the early 1980s
when the safety net was not expanded by as much, poverty rose by 4.7 percentage points from
17.4 percent in 1979 to 22.1 percent in 1982 (as also shown in Figure 5).
Figure 11
The Recovery Act played a large role in keeping Americans out of poverty during the recession,
as shown in Figure 11. In total, between 3.9 and 5.7 million people a year were kept out of
39
poverty by these programs from 2009 to 2012. Without the Recovery Act, the Supplemental
Poverty Rate would have been 1.9 percentage points higher in 2009 and 1.7 percentage points
higher in 2010. Over the four years between 2009 and 2012, CEA estimates that 19.1 million
person years were kept from poverty as a result of the expansions created by the Recovery Act
alone. This calculation is conservative, in that it does not account for the impact of those
expansions on employment through increased aggregate demand, and does not attempt to
measure the impact of other components of the Recovery Act such as increased funding for Pell
Grants and paying for COBRA for the unemployed.
Expanding Health Care Security
The Affordable Care Act (ACA) ensures that all Americans have access to quality, affordable
health insurance. The ACA provides financial incentives to states to expand their Medicaid
programs to all people who are in or near poverty. As a result, 26 states have adopted the
Medicaid expansion. For moderate-income Americans, the ACA provides tax credits for the
purchase of insurance through marketplaces and cost-sharing reductions. The Congressional
Budget Office estimates that, by 2016, these measures will increase the number of Americans
with health insurance by 25 million (Congressional Budget Office 2013).
Americans of all income levels are already benefiting from insurance market reforms that
ensure access to preventive services and no lifetime coverage limits. Further, Americans buying
insurance are no longer forced to pay a higher premium because of their gender or health
status, and can be confident that their insurance provides adequate financial protection. The
ACA has also begun reforming the way the United States pays for health care to promote more
efficiency and quality in the health system, the early results of which are discussed in a recent
CEA report (CEA 2013).
Nutrition programs like SNAP are vital to the economic livelihood of many families and
communities, especially in a recessionary period. Every time a family uses SNAP benefits to put
healthy food on the table, the benefits extend widely beyond those individuals. In fact, the U.S.
Department of Agriculture’s Economic Research Service estimates that an additional $1 billion
in SNAP benefits supports an additional 8,900 to 17,900 full-time-equivalent jobs (Hanson
2010).
Empowering Every Child with a Quality Education
To prepare Americans for the jobs of the future, we have to strengthen our investments in the
Nation’s educational system. The Administration has invested in coordinated State systems of
early learning and proposed new policies building on evidence of how to create a foundation
for success in the formative early years of life. High-quality early learning and development
programs can help level the playing field for children from lower-income families on vocabulary,
social and emotional development, and academic skills while helping students to stay on track
and stay engaged in the early elementary grades. These programs generate a significant return
on investment for society through a reduced need for spending on other services, such as
remedial education, grade repetition, and special education, as well as increased later
productivity and earnings. The Administration’s comprehensive early-learning agenda invests in
early childhood education, care, and development for our nation’s youngest learners. In
40
partnership with the States, the Preschool for All initiative would provide high-quality preschool
for four-year olds from low- and moderate-income families, while encouraging States to serve
additional four-year olds from middle-income families. The Administration has also proposed
investments in high-quality early learning for infants and toddlers through new Early Head
Start-Child Care Partnerships, as well as an extension and expansion of evidence-based
voluntary home visiting programs that allow nurses, social workers, educators, and other
professionals to connect pregnant women and vulnerable families with young children to tools
that positively impact the child’s health, development, and ability to learn.
Over the past 50 years, improvements in education at all levels have produced large returns for
many Americans and played a key role in the economic mobility of children born to poor
families. Because economic progress and educational achievement are inextricably linked,
educating every American student to graduate from high school prepared for college and for a
career is a national imperative. The President has articulated a goal for America to once again
lead the world in college completion by the year 2020, and the Administration’s education
efforts aim toward this overarching objective. To provide a high-quality education to all
American children, the Administration, in partnership with states, has advanced reforms of the
Nation’s K-12 education system to support higher standards that will prepare students to
succeed in college and the workplace; efforts to recruit, prepare, develop, and advance
effective teachers and principals; efforts to eliminate discrimination on the basis of race, color,
national origin, sex and disability in public school; efforts to ensure the use of data in the
classroom; and a national effort to turn around our chronically lowest-achieving schools. The
School Improvement Grants (SIG) program has invested over $5 billion in 1500 of the nation’s
lowest performing schools. The Promise Neighborhood Program, established by this
Administration in 2010, has funded 58 neighborhoods across the country to design
comprehensive projects that include a continuum of services and designed to combat the
effects of poverty and improve education and life outcomes, from birth through college to
career. The Administration has also put forward proposals to redesign the Nation’s high schools
to better engage students and to connect 99 percent of students to high-speed broadband and
digital learning tools within the next five years. Continued investments and reforms are needed
to ensure that all students have access to a high-quality education that prepares them for
college and a career and for success in today’s global economy.
With the average earnings of college graduates at a level twice as high as that of workers with
only a high school diploma, higher education is now the clearest pathway into the middle class.
Our Nation suffers from a college attainment gap, as high school graduates from the wealthiest
families are almost certain to continue on to higher education, while just over half of high
school graduates in the poorest quarter of families attend college. This gap has increased over
the past several decades. And while more than half of college students graduate within six
years, the completion rate for low-income students is around 25 percent. To achieve the
President’s goal for college completion, ensure that America’s students and workers receive the
education and training needed for the jobs of today and tomorrow, and provide greater
security for the middle class, the Administration is working to make college more accessible,
affordable, and attainable for all American families. Under President Obama, Pell Grant funding
41
was increased to serve over 3 million additional low-income students and the average grant
was increased by more than $900. The Administration also created the American Opportunity
Tax Credit to ease college costs for over 9 million families, and championed comprehensive
reform of student loans that will save taxpayers $68 billion over the next decade. Finally, the
administration has launched an array of policies to contain college costs, and make it easier for
students to manage their student debt through income-based repayment reforms, which limit
student loan payments to a percentage of their income so that young workers will not be
swamped by debt payments as they are establishing their households and careers.
Given the critical importance of education in expanding skills and opportunities, the
Administration implemented several policies designed to increase college access and
affordability for low-income students. Recognizing that the opportunity to acquire the skills to
get and keep a good job starts early and through education, the President is also proposing to
modernize America’s high schools for real-world learning. The goal is to provide challenging,
relevant experiences, and reward schools that develop new partnerships with colleges and
employers, and that create classes that focus on technology, science, engineering, and other
skills today’s employers are demanding to fill jobs now and in the future.
Creating Jobs and Growing Our Economy
Building on the evidence that well-designed training programs can improve employment and
earnings (Andersson et al. 2013), this Administration has proposed investing in subsidized
employment and training opportunities for adults who are low-income or long-term
unemployed. In 2009 and 2010, 372,000 low-income youth were placed into summer and yearround employment, and supported job opportunities were created for about 260,000 lowincome individuals. In addition, the President continues to build public-private partnerships to
provide opportunities for low-income youth.
The Administration is using all available tools to help people who have lost their jobs to find
new work or to train for new careers in growth fields that will provide better jobs and paths to
viable careers. This includes supporting training opportunities that lead directly to a job, and
making sure our unemployment system promotes re-employment through wide-ranging
reforms to the unemployment insurance program, some of which were adopted in the Middle
Class Tax Relief and Jobs Creation Act of 2012, and continued investment in reemployment
services, which have proven effective in speeding the return to work.
The President has proposed to build on these successes by further investing in creating job and
work-based training opportunities for the long-term unemployed and youth seeking skills and
wanting to get into the workplace.
This Administration has already invested $1.5 billion in community college-business
partnerships in all 50 states to build capacity and develop curricula to train workers for jobs in
growing industries. President Obama has proposed to build on these successes with further
investments that will transform community college education and support Americans in getting
training to enter skilled jobs.
42
RAISING THE MINIMUM WAGE
In 2013, the federal minimum wage was at the same inflation-adjusted level as it was in 1950.
A full-time worker earning $7.25 per hour would not be able to keep a family of four out of
poverty, even with the help of the Earned Income Tax Credit and Child Tax Credit. Instead of
allowing the value of the minimum wage to continue to erode while incomes at the top of the
distribution soar, it is time to make the minimum wage a wage people can live on.
Raising the minimum wage to $10.10 per hour would help a large, diverse group of workers,
and indexing it to inflation would ensure that its real value does not deteriorate over time, as
it has after past increases. Nearly 19 million people earned wages near the minimum wage in
2012 and would be directly affected by such an increase, 48 percent of whom had household
incomes below $35,000. Full-time workers earning exactly the minimum wage would see their
earnings increase by $5,700, enough to move a family of four from 17 percent below the
poverty line to 6 percent above it, once tax credit assistance is included. The CEA estimates
that raising the minimum wage to $10.10 by 2016 would lift roughly 1.6 million workers
whose wages are currently near the minimum wage, and members of their families, out of
poverty.
Opponents of increasing the minimum wage argue that the beneficiaries are largely middleclass teenagers, and those most in need of assistance are kept out of jobs by high wages. The
available evidence does not support those claims. Among those workers who would be
directly affected by increasing the minimum wage to $10.10, 90 percent are more than 18
years old. A large literature has considered the effects of minimum wages on employment,
and the best evidence suggests there is little to no effect (Doucouliagos and Stanley 2009).
While a higher minimum wage could increase compensation costs for employers, they could
also reap benefits, including lower employee turnover rates, and by extension lower costs of
hiring and training new workers, as well as increased demand for their goods and services
among low-wage workers.
Fighting for Workers
Work that pays enough to support a family is the most central antipoverty measure. In 2013,
the Obama Administration finalized rules to extend minimum wage and overtime protections to
nearly two million direct-care workers who provide care assistance to elderly people and
people with illnesses, injuries, or disabilities. This will ensure our nation’s health aides, personal
care aides and certified nursing assistants receive the same basic protections already provided
to most U.S. workers, while improving the quality and stability of care for those who rely on
them.
Minimum wage and overtime protections have been a bulwark of protection against poverty,
but the minimum wage has not kept pace with inflation. Today, a worker trying to support a
43
family on the minimum wage is still living in poverty. That is why President Obama supports the
Harkin-Miller bill to increase the minimum wage to $10.10 by 2016 (see box).
Investing in and Rebuilding Hard-Hit Communities
Living in a high-poverty area presents a wide variety of challenges, including crime, limited
access to quality education, and scarcity of good jobs. Since these issues often interact with
each other and compound the problems they create individually, it is very difficult for people,
particularly children, to overcome the disadvantages created by and associated with poverty.
A child’s zip code should never determine his or her destiny. To help provide ladders of
opportunity so that every child has a chance to succeed, the Administration is working with
State and local governments to focus public and private resources on transforming areas of
high need into communities of opportunity.
The Administration’s Promise Zones initiative focuses existing government resources on
competitively selected communities and leverages private investment to create jobs, improve
public safety, increase educational opportunities, and provide affordable housing. The Obama
Administration will designate 20 communities over the next several years with this intense and
layered approach to community revitalization.
That approach includes working with local leadership, and bringing to bear the resources of the
President’s signature revitalization initiatives from the Department of Education (ED), the
Department of Housing and Urban Development (HUD), the Department of Agriculture, and the
Department of Justice (DOJ), to ensure that federal programs and resources support the efforts
to turn around 20 of the highest poverty urban, rural and tribal communities across the
country.
The Promise Zones initiative will build on existing programs, including the Department of HUD’s
Choice Neighborhoods and the Department of Education’s Promise Neighborhoods grant
programs. The Administration has invested $248 million in Choice and $157 million in Promise
since 2010. For every federal dollar spent, Choice Neighborhoods has attracted eight dollars of
private and other investment and has developed nearly 100,000 units of mixed-income housing
in 260 communities, ensuring that low-income residents can afford to continue living in their
communities. Promise Neighborhoods grants are supporting approximately 50 communities
representing more than 700 schools. To help leverage and sustain grant work, 1,000 national,
state, and community organizations have signed-on to partner with a Promise Neighborhood
site. By expanding these programs, the Administration continues to support local efforts to
transform low-income urban, rural, and tribal communities across the country.
44
V.
Conclusion
The War on Poverty represented a dramatic shift in the Federal Government’s priorities for
helping those who are left behind in a growing economy. It set in motion a series of changes
that transformed our social safety net and improved the well-being and economic outcomes of
countless low-income Americans and their children. The architects of the War on Poverty
believed that the combined effect of government policies attacking poverty on many fronts—
providing income when earnings are low, providing access to health insurance, insuring that
people have shelter and a minimal food budget, and providing access to education at all ages—
would dramatically raise employment and earnings and reduce material hardship. In the years
since 1964, this optimism and belief in the capacity of government to improve the lives of less
fortunate Americans has at times given way to the cynical belief that the safety net is
ineffective, or even exacerbates the problems of the poor by reducing the incentives for those
able to work to do so.
The most important lesson from the War on Poverty is that government programs and policies
can lift people from poverty; indeed they have for the past 50 years. Poverty rates fell from
25.8 percent in 1967 to 16 percent in 2012—a decline of nearly 40 percent. In 2012 alone, the
combined effect of all federal tax, cash and in-kind aid programs was to lift approximately 14.5
percent of the population—over 45 million people—out of poverty.
But another lesson is that we cannot afford to simply embrace any program that purports to
achieve this goal or attempt to freeze them in time. Instead, our antipoverty efforts have
benefited from enormous changes in public policy since the 1960s, informed by a wealth of
research on both successful and failed programs that provide important insights into what does
and does not work in fighting poverty. Our safety net has evolved to put more emphasis on
rewarding and supporting work, such as by providing greater support to working families
through the Earned Income Tax Credit and refundable Child Tax Credit, while also making it
easier for them to get help from programs like SNAP and Medicaid. In 1967 we spent $19 billion
in today’s dollars on what was then called AFDC and nothing on the Earned Income Tax Credit.
Today the Earned Income Tax Credit and partially refundable Child Tax Credit are 3.8 times the
size of the TANF program.22 Meanwhile, the Affordable Care Act advances the goal of providing
quality affordable health care to all Americans, with financial incentives to states to expand
their Medicaid programs to all people who are in or near poverty and generous tax credits for
moderate-income households. Our safety net remains imperfect, but these reforms and
improvements represent important progress—and they also help many families work and raise
the rewards to that work.
Nearly 50 million Americans still live in poverty, however, including 13.4 million children, and so
there remains a need to do more to help the poor. The 1964 Economic Report of the President
estimated that the total shortfall in income necessary to bring all poor families up to the
22
Based on CEA calculations using data from
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/hist.pdf.
45
poverty level was $11 billion (about $71 billion in today’s dollars), or about 1.6 percent of the
country’s annual Gross Domestic Product. Our nation has grown much richer since, and today
the total shortfall below poverty is only 0.6 percent of GDP. Continuing to make progress in
closing that shortfall will require not just defending the programs that have helped reduce
poverty but also continuing the efforts to strengthen the economy, increase growth and ensure
that growth is reflected in broad-based wage gains so that families lift themselves out of
poverty.
46
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